The students and teachers of various educational institutes in the federal capital and Punjab were amazed when arrangements were made for a briefing for them on a topic that none of them had ever thought about – how to invest in a stock market?

After visiting the educational institutes in Islamabad, Sargodha and other parts of Punjab, a team of Islamabad Stock Exchange (ISE) is scheduled to visit a medical college in Abbottabad, telling the young generation about the benefits of investing in different financial products.

However, as expected, like the vast majority of the countrymen, the students are not even aware of the activities happening inside the stock markets, what to speak of terms like shares, mutual funds, IPOs, dividends etc.

As expected, the first question by the students at the International Islamic University Islamabad to the team of ISE was if share business was ‘halal.’

The ISE teams are moving from one educational institute to another under their ongoing ‘Investors Education Programme,’ to encourage the saving habits among all segments of society, including students.

“No matter how young or old one is, there is a need to have savings,” said Waris Niazi, the deputy general manager of the ISE. “And the best way to develop saving is to invest properly.”

The decision to approach students, ordinary traders, executives, government employees etc has been taken by the corporate sector regulator, the Securities and Exchange Commission of Pakistan (SECP), and the directives in this regard have been issued to all the three stock exchanges of the country.

“The most serious issue is that Pakistanis are very spendthrift and we need to develop saving habits,” said chairman SECP, Mohammad Ali.

He added, “Whatever saving habit we have is more to do with blocking the money in unproductive ventures like purchase of gold, real estate.”

But this is also due to lack of investment opportunities in the country as there are news about dubious schemes resulting in total loss of lifesavings.

The World Bank’s report on “Bringing Finance to Pakistan’s Poor” also highlights lack of financial access in the country. Only 14 per cent of Pakistanis use a financial product or service from a formal financial institution - the lowest percentage across the region as depicted below:

Left with no option, people seeking safe investment windows deposit their amount in banks and purchase National Saving Scheme certificates (prize bonds).

While the financial sector managers are encouraging the ordinary citizens to invest in various non-traditional options, there are more fears related to the sale and purchase of shares rather than the excitement of bagging respectable profits after some time.

The Karachi Stock Exchange crash in 2005 and 2008 has aggravated this fear and even those who were involved in the capital markets currently prefer to stay away.

The officials acknowledge that there were certain legal lacunas leading to the market crash but they also blame lack of knowledge and involvement of the masses in the financial sector for it.

“The reasons for both the crashes are different but one thing has changed that the markets are not totally dominated by a few hands as it was in the past when they were playing recklessly without any check,” said a former director of KSE, who did not want to be named.

However, he added that the situation had changed gradually with the introduction of IT in trading and clearing of shares.

“Now suspicious movements or illegal sale/purchase are very easily detected compared to the past,” he added. “So the bigwigs are not strong enough to make massive movements of the whole stock market.”

Meanwhile, the SECP in a recent policy note said one of the main reasons for such low involvement in the financial markets by Pakistanis was lack of awareness about products available and lack of education towards the benefits of investing in financial products.

“Almost 50 per cent of Pakistanis are completely excluded from the financial sector, while approximately 20 per cent are not aware of even the simplest form of financial services or products,” the SECP note said, adding the figure gets much more inflated as the products or services get more complicated.

This is the reason that Investor Education Programme has been initiated collectively by stock exchanges to remove mistrust from the financial sector and build investor confidence

“With basic knowledge and awareness, the investors will know how to enter the capital markets, the potential risks and returns associated with them,” said the SECP chairman. “Diversification of investments across various investment instruments is needed that is making a portfolio of investment products rather than putting all available money in a single instrument.”

The three-year education programme has divided the investors into three segments, starting with school and university students with the aim to develop life-long saving and investing habits at an early age.

It is followed by the ‘general investors’ who are the corporate sector and business community from various professions with a view to educate potential and existing investors on their rights, responsibilities, risks and rewards.

The third category comprises ‘grey individuals’ close to the retirement age with a life-long of savings.

The long-term target of the SECP is to develop across-the-board investments in various products, including insurance, private pension, Islamic non-bank finance, mutual funds, capital markets, private equity, venture capital and even the future markets which include the commodities and currencies.

But the most serious challenge for the stock exchanges and corporate regulator is to float and manage simple products for the general public, readily available to them near their workplaces.

“No one will go to the stock market just to invest money and check the return on investment,” said Ajmal Baloch, a leader of the traders’ community in Islamabad. “We go to the bank only because they are near us and these shares business etc has to be in the markets and not in a big building near the red zone.”

If Mr Baloch feels that going to the ISE building in Blue Area from Aabpara is a hassle, one can imagine the views of traders in Rawalpindi and not to speak of those in other towns, including Peshawar which fall under the jurisdiction of ISE for investment in capital markets.